GLNCY Glencore Plc (PK)

By Alex MacDonald 

LONDON--Commodities titan Glencore PLC said Thursday that its trading division would generate less profit than expected for a second consecutive year, undermining a key bulwark of the Swiss miner's business as it scrambles to strengthen its balance sheet by cutting debt.

In a sign that it expects a price slump to continue for a prolonged period, Glencore said its "marketing" division, also called its trading arm, is now forecast to generate between $2.4 billion and $2.7 billion in adjusted earnings before interest and taxes in 2016 due to lower working capital levels and reduced copper, zinc, lead and coal volumes.

This stands in contrast with Chief Executive Ivan Glasenberg's comments earlier this year that the trading division would make between $2.7 billion and $3.7 billion in annual profit "no matter what commodities are doing."

Still, Glencore's shares rose 8% following the statement, marking its biggest percentage gain in two weeks.

The Switzerland-based trader and producer of commodities ranging from copper to coal grains and oil said it is now aiming to reduce net debt to between $18 billion and $19 billion by the end of 2016 compared with a previous target of just above $20 billion.

In September, the U.K.-listed miner announced $10 billion worth of measures aimed at reducing net debt by about a third to around $20 billion from $29.6 billion at the end of June. This followed investor concerns that the company could lose its investment-grade credit rating status if commodity prices fell further or stayed low for longer given its heavy debt burden.

The company said it has delivered on the bulk of those commitments, or $8.7 billion to date, through asset sales, cost cuts and dividend suspension. It is now boosting its net debt reduction target measures by almost $3 billion to $13 billion.

"Glencore is well placed to continue to be cash generative in the current environment, and at even lower prices," said Mr. Glasenberg.

Ahead of Thursday's statement, Glencore's shares had fallen 72% since the beginning of the year, making it the second-worst performer out of the U.K.'s blue-chip FTSE 100 mining index this year, following Anglo American PLC.

Glencore had been battered along with other miners by a slump in commodity prices stemming from an economic slowdown in China, the world's largest consumer of raw materials, and a sudden ramp up of supplies following years of investment in mine expansion.

Glencore said it is still generating free cash flow of more than $2 billion at current spot prices and said it would further reduce capital expenditure this year and next. Meanwhile, its trading division is on track to generate adjusted EBIT of $2.5 billion this year, at the bottom end of its previously revised guidance of between $2.5 billion and $2.6 billion.

Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

December 10, 2015 03:56 ET (08:56 GMT)

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